Test 2 Flashcards
1
Q
False Refund Scheme
A
One of two main categories of register disbursements, in which fraudulent refund is processed at the cash register to account for stolen cash
2
Q
Fictitious Refund Scheme
A
A false refund scheme in which an employee processes a fake refund transaction as if a customer were actually returning merchandise and pockets the cash instead.
3
Q
Overstated Refund Scheme
A
A false refund scheme in which an employee overstates the amount of a legitimate customer refund, then gives the customer the actual amount of the refund and steals the excess cash
4
Q
False void scheme
A
One of two main categories of registers disbursements. A scheme in which an employee accounts for stolen cash by voiding a previously recorded sale.
5
Q
Mischaracterized Expense Scheme
A
An attempt to obtain reimbursement for personal expenses by claiming that they are business related expenses
Purpose of reimbursement request is misstated
Fraudster seeks reimbursement for personal expenses
Personal trips listed as a business trips
Non-allowable meals with friends and family
Perpetrators are usually high-level employees, owners, or officers
Common element – lack of detailed expense reports
6
Q
Overstated Expense Reimbursements
A
Schemes in which business related expenses are inflated on an expense report so that the perpetrator is reimbursed for an amount greater than the actual expense
Altered receipts
Overpurchasing
Overstating another employee’s expenses
Orders to overstate expenses
7
Q
Overpurchasing
A
A method of overstating business expenses whereby a fraudster buys two or more business expense items at different prices and then returns the more expensive item for a refund.
8
Q
Fictitious Expense Reimbursement Schemes
A
A scheme in which an employee seeks reimbursement for wholly nonexistent items or expenses
Producing fictitious receipts
Computers
Calculators
Cut and paste
Obtaining blank receipts from vendors
Claiming the expenses of others
9
Q
Multiple Reimbursement Schemes
A
A scheme in which an employee seeks to obtain reimbursement more than once for a single business related expense.
A single expense item is submitted several times to receive multiple reimbursements
Example: Airline ticket receipt and travel agency invoice
Submit the credit card receipt for items charged to the company’s credit card account
Submitting the same expenses to different budgets
10
Q
Ghost Employee
A
An individual on the payroll of a company who does not actually work for the company.
11
Q
Rubber Stamp Supervisor
A
A supervisor who neglects to review documents, such as time cards, before signing or approving them for payment
12
Q
Larceny
A
Schemes in which an employee steals an asset without attempting to conceal the theft in the organization’s books and records
13
Q
Fraudulent Write-offs
A
A method used to conceal the theft of noncash assets by justifying their absence on the books. Stolen items are removed from the accounting system by being classified as scrap, lost or destroyed, damaged, bad debt, scrap, shrinkage, discounts and allowances, returns and so forth.
14
Q
Shrinkage
A
The unaccounted for reduction in an organizations inventory that results from theft
15
Q
Perpetual Inventory
A
A method of accounting for inventory in the records by continually updating the amount of inventory on hand as purchases and sales occur
16
Q
Physical Inventory
A
A detailed count and listing of assets on hand
17
Q
Forced Reconciliation
A
A method of concealing fraud by manually altering entries in an organizations books and records by intentionally miscomputing totals. In the case of noncash misappropriations, inventory records are typically altered to create a false balance between physical and perpetual inventory
18
Q
Physical Padding
A
A fraud concealment scheme in which the fraudsters try to create the appearance that there are more assets on hand in a warehouse or stockroom than there actually are i.e. by stacking empty empty boxes to create the illusion of extra inventory
19
Q
Bid-Pooling
A
A process by which several bidders conspire to split contracts, thereby ensuring that each gets a certain amount of work.
20
Q
Bid-Rigging
A
A process by which an employee assists a vendor to fraudulently win a contract through the competitive bidding process.
All bidders are expected to be on an even playing field – bidding on the same specifications
The more power a person has over the bidding process, the more influence he or she can exert over the selection of the winning bid
Potential targets include: Buyers, Contracting officials, Engineers and technical representatives, Quality or produce assurance representatives, Subcontractor liaison employees
21
Q
Bid-Splitting
A
A fraudulent scheme in which a large project is split into several component projects so that each sectional contract falls below the mandatory bidding level, thereby avoiding the competitive bidding process
22
Q
Bribery
A
The offering , giving, receiving, or soliciting of something of value for the purpose of influencing an official act
Buys influence of the recipient
Commercial bribery
Kickbacks
Bid-rigging schemes
23
Q
Business Diversions
A
A scheme that typically involved a favor done for a friendly client. Business diversions can include situations in which an employee starts his own company and while still employed by the victim, steers existing or potential clients away from the victim and toward his own company
24
Q
Collusion
A
A secret agreement between two or more people for fraudulent, illegal, or deceitful purpose, such as overcoming the internal controls of their employer
25
Commercial Bribery
The offering, giving, receiving, or soliciting of something of value for the purpose of influencing a business decision without the knowledge or consent of the principal
26
Conflict of Interest
A situation in which an employee, manager, or executive has an undisclosed economic or personal interest in a transaction that adversely affects the company as a result
Employee, manager, or executive has an undisclosed economic or personal interest in a transaction that adversely affects the company
Victim organization is unaware of the employee’s divided loyalties
Distinguished from bribery–in conflicts of interest, the fraudster approves the invoice because of his own hidden interest in the vendor
Purchasing schemes
Sales schemes
27
Economic Extortion
The obtaining of property from another when the other party's consent has been induced by wrongful use of actual or threatened force or fear
28
Illegal Gratuities
The offering, giving, receiving, or soliciting of something of value for, or because of, an official act.
29
Kickbacks
Schemes in which a vendor pays back a portion of the purchase price to an employee of the buyer in order to influence the buyers decision
Involve submission of invoices for goods and services that are either overpriced or completely fictitious
Involve collusion between employees and vendors
Almost always attack the purchasing function of the victim company
Diverting business to vendors - Vendor pays the kickbacks to ensure a steady stream of business from the purchasing company, No incentive to provide quality merchandise or low price, Almost always leads to overpaying for goods or services
30
Need Recognition Scheme
A presolicitation-phase-bid-rigging conspiracy between the buyer and the contractor whereby an employee of the buyer receives something of value to convince his company that it has a "need" for a particular product or service
31
Official Act
The decisions or actions of government agents or employees. Traditionally, bribery statutes proscribed only payments made to influence pubic officials
32
Purchasing Scheme
A conflict of interest scheme in which a victim company unwittingly buys something at a high price from a company in which one of its employees has a hidden interest
Overbilling Schemes
Turnaround sales
33
Resource Diversions
The diversion of assets from the victim company
34
Sales Scheme
A conflict of interest scheme in which a victim company unwittingly sells something at a low price to a company in which one of its employee's has a hidden interest
Underbillings
Writing off sales
35
Slush Fund
A noncompany account into which company money has been fraudulently diverted and from which bribes can be paid
36
Specification Scheme
A presolicitation bid-rigging conspiracy between the buyer and vendor wherein an employee of the buyer receives something of value to set the specifications of the contract to accommodate that vendor's capabilities
37
Turnaround Sales
A purchasing scheme wherein an employee knows that his company plans to purchase a certain asset, takes advantage of the situation by purchasing the asset himself, and them sells the asset to his employer at an inflated price
38
Underbilling
A sales scheme that occurs when an employee underbills a vendor in which she has a hidden interest. As a result the company ends up selling the goods and services at less than fair market value, which creates a diminished profit margin or loss on the sale.
39
Preventing and Detecting Ghost Employee Schemes
Separate the hiring function from the payroll function
Personnel records should be independently maintained from payroll and timekeeping functions
Personnel department should verify any changes to payroll
Background and reference checks should be made in advance of hire
Periodically check the payroll records against personnel records for terminated employees and unauthorized wage or deduction adjustments
Periodically run computer reports for employees
Without SSNs
With no deductions - withholding taxes or insurance
With no physical address or telephone number
Compare payroll expenses to production schedules
Keep signed checks in a secure location
Verify proper distribution and require employee identification
40
Preventing and Detecting Falsified Hours and Salary Schemes
Preparation, authorization, distribution, and reconciliation should be segregated
Transfers of funds from general accounts to payroll accounts should be handled independently
No overtime should be paid unless authorized in advance
Sick leave and vacation time should not be granted without supervisory review and should be monitored for excessive time taken
A designated official should verify all wage rate changes
Timecards should be taken directly to the payroll department after approval
Time cards should be secured and monitored
Run programs to actively seek out fraudulent payroll activity
41
Tests for Fraudulent Payroll Activity
Review employees who have significantly more overtime than similar employees
Trend analysis of budgeted vs. actual expenses
Run exception reports for employees who have had disproportionately large increases in wages
Verify payroll taxes equal federal return tax forms
Compare net payroll to payroll checks issued
42
Detecting Commission Schemes
Run periodic reports to show an unusual relationship between sales figures and commission figures
Run reports that compare commissions earned among salespersons
Track uncollected sales generated by each salesperson
Conduct random samples of customers to verify that the customer exists
43
Preventing and Detecting Mischaracterized Expenses
Establish and adhere to a system of controls
Require detailed expense reports with original support documentation
Require direct supervisory review of all travel and entertainment expenses
Establish a policy that clearly states what will and will not be reimbursed
Scrutinize any expense report that is approved outside the requestor’s department
Compare dates of claimed expenses to work schedules
Compare prior year expenses to current year expenses and to budgeted expenses
44
Preventing and Detecting Overstated Expense Reimbursements
Require original receipts for all expense reimbursements
If photocopied receipts are submitted, independently verify the expense
Book travel through company travel agent using designated company credit card
Compare employee’s expense reports with co-workers to identify inconsistencies
Spot check expense reports with customers
45
Preventing and Detecting Fictitious Expense Reimbursements
High dollar items that were paid in cash
Expenses that are consistently rounded off, ending with “0” or “5”
Expenses that are consistently for the same amount
Reimbursement requests that consistently fall at or just below the reimbursement limit
Receipts that are submitted over an extended time that are consecutively numbered
Receipts that do not look professional or that lack information about the vendor
46
Preventing and Detecting Multiple Reimbursement Schemes
Enforce a policy against accepting photocopies
Establish clearly what types of support documentation are acceptable
Scrutinize expense reports that are approved by supervisors outside the requestor’s department
Require that expense reimbursements be approved by the employee’s direct supervisor
Establish a policy that expenses must be submitted within a certain time limit
47
False Refunds
A refund is processed when a customer returns an item of merchandise purchased from the store
Merchandise is placed back into inventory
Purchase price is returned to the customer
48
Fictitious refunds
Fraudster takes cash from the register in the amount of the false return
Debit is made to the inventory system showing that the merchandise has been returned to the inventory
49
Overstated refunds
Fraudster overstates the amount of a legitimate refund and skims the excess money
Customer is paid the actual amount owed for the returned merchandise and the excess is kept by the fraudster
50
Credit card refunds
Refunds appear as credits to the customer’s credit card rather than as cash disbursements
Perpetrator does not have to physically take cash from the register
Refunded to the perpetrator’s credit card
51
False Voids
Also generate a disbursement from the register
Copy of customer’s receipt is attached to the void slip
Managers must generally approve voided sales
Rubber stamp approvals allow the fraud to succeed
Management and the employee may conspire
52
Concealing Register Disbursements
Fraudsters typically do not make any effort to conceal the shrinkage
Register disbursement schemes leave the victim organization’s books in balance
Fraudster often takes no further action
Small disbursements - Keep the size of the disbursements low to where management review is not required
Destroying records - Employee has conceded that management will discover the theft, Goal is to prevent management from discovering who the thief is
53
Preventing and Detecting Register Disbursement Schemes
Maintain appropriate separation of duties
Management approval should be required for all refunds and voided sales
Closely guard access to the control key or management code
Prohibit cashiers from reversing their own sales
Require proper documentation for voided transactions such as the original receipt
Require cashiers to maintain a distinct login code
Periodically generate reports of all reversing transactions
Look for large numbers of transactions just below the approval amount
Institute store policies encouraging customers to ask for and examine their receipts
Randomly call customers who have returned merchandise or voided sales
54
Non-Cash Tangible Asset Misappropriations
Misuse
Unconcealed larceny
Asset requisitions and transfers
Purchasing and receiving schemes
Fraudulent shipments
55
Misuse of Non-Cash Tangible Assets
Typical misuse
Company vehicles
Company supplies
Computers
Other office equipment
Doing personal work on company time
Running side businesses
56
The Costs of Inventory Misuse
Loss of productivity
Need to hire additional employees to compensate
Lost business if employee’s business competes
Unauthorized use of equipment can mean additional wear and tear sooner or more often
57
Unconcealed Larceny Schemes
Greater concern than misuse of assets
Most schemes are not complex
Some employees know their co-workers are stealing but refrain from reporting it
Many of the employees who steal company property are highly trusted
Assets misappropriated after-hours or mailed to perpetrator
58
The Fake Sale
Needs an accomplice
Sale is not rung up but the accomplice takes the merchandise
Accomplice may return merchandise for cash
59
Preventing and Detecting Unconcealed Larceny of Non-Cash Tangible Assets
Segregate the duties of requisitioning, purchasing, and receiving
Segregate the duties of payables, purchasing, and receiving
Maintain physical security of merchandise
Track those who enter secure areas through access logs
Install security cameras and let their presence be known
Conduct inventory counts on a periodic basis by someone independent of the purchasing and warehousing functions
Suspend shipping and receiving activities during physical counts
Investigate significant discrepancies
Independently follow-up on customer complaints
60
Asset Requisitions and Transfers
Documentation enables non-cash assets to be moved from one location to another
Internal documents can be used to fraudulently gain access to merchandise
Basic scheme is to requisition materials to complete a work-related project, then steal the materials
Inventory stored in multiple locations creates opportunities
61
Purchasing and Receiving Schemes
Assets were intentionally purchased by the company but misappropriated
Falsifying incoming shipments
May also reject portion of the shipment as being substandard
Perpetrator keeps the “substandard” merchandise
62
False Shipments of Inventory and Other Assets
False shipping and sales documents are created to make it appear that the inventory was sold
False packing slips can allow the inventory to be delivered to fraudster or accomplice
To hide the theft a false sale is created
Receivable is aged and written off
Legitimate sale is understated
63
Concealing Inventory Theft
Key concealment issue is shrinkage
Inventory shrinkage is the unaccounted-for reduction in the company’s inventory due to theft
Since shrinkage signals fraud, the fraudster must prevent anyone from looking for the missing assets
Physical count of inventory detects shrinkage
Altered inventory records - Forced reconciliation, Deleting or covering up the correct totals and entering new totals
Fictitious sales and accounts receivable - Charge sale to existing account, Write-off to discounts and allowances or bad debt expense
Write off inventory and other assets
Physical padding
64
Preventing and Detecting Thefts of Non-Cash Tangible Assets
Separate the duties of:
Ordering goods
Receiving goods
Maintaining perpetual inventory records
Issuing payments
Match the invoices to receiving reports before payments are issued
Match the packing slip to an approved purchase order
Match outgoing shipments to sales orders before merchandise goes out
Periodically match inventory shipments to sales records
Investigate shipments that cannot be traced to a sale
Check out unexplained increases in bad debt expense
Compare shipping addresses to employee addresses
Review unexplained entries in perpetual inventory records
Reconcile materials ordered for specific projects with actual work done
Perform trend analysis on scrap inventory
Check to make sure that inventory removed from inventory is properly approved
65
Misappropriation of Intangible Assets
Misappropriation of information
Includes theft of competitively sensitive information, (e.g., trade secrets, customer lists, marketing strategies)
Can undermine value, reputation, and competitive advantage
Can result in legal liabilities
Identify most valuable information and take steps to protect it
Misappropriation of securities
Proper internal controls over investment portfolio
66
Overbilling Schemes
Employees with approval authority - Vendor submits inflated invoices to the victim company, Overstates the cost of actual goods or services or reflects fictitious sales, Ability to authorize purchases is key to the scheme
Employees lacking approval authority - Circumvent purchasing controls, May prepare false vouchers to make it appear that the invoice is legitimate, May forge an approval signature or have access to a restricted password in a computerized system, Difficult to detect since the victim company is being attacked from two directions
67
Detecting Kickbacks
Normal controls may not detect kickback schemes
Look for price inflation
Monitor trends in cost of goods sold and services purchased
Often start small but increase over time
Look for excessive quantities purchased
Investigate inventory shortages
Look for inferior goods purchased
Compare actual amounts to budgeted amounts
68
Preventing Kickbacks
Assign an employee independent of the purchasing department to routinely review buying patterns
Make sure that all contracts have a “right to audit” clause
Establish written policies prohibiting employees from soliciting or accepting any gift or favor from a customer or supplier
Expressly forbid any employee from engaging in any transaction, on behalf of the company, in which he or she has an undisclosed personal interest
Implement an ethics policy that clearly explains what improper behavior is and provides grounds for termination if an employee accepts a bribe or kickback
69
Pre-Solicitation Phase
Need recognition schemes
Employee of the purchasing company convinces the company that a particular project is necessary
Has the specifications tailored to the strengths of a particular supplier
Trends indicating a need recognition scheme is occurring
Higher requirements for stock and inventory levels
Writing off large numbers of surplus items to scrap
Defining a need that can only be met by a certain supplier
Failure to develop a satisfactory list of backup suppliers
70
Specification Schemes
Specifications include a list of the elements, materials, dimensions, and other relevant requirements
Set the specifications to a particular vendor’s capabilities
Use“prequalification” procedures to eliminate certain vendors
Sole-source or noncompetitive procurement justifications
Deliberately writes vague specifications requiring amendments at a later date
Bid splitting
Gives a vendor the right to see the specifications before his competitors get the specs
71
The Solicitation Phase
Restricting the pool of vendors from which to choose
Bid pooling
Fictitious suppliers
Restricting the time for submitting bids
Soliciting bids in obscure publications
Publicizing the bid during holiday periods
72
The Submission Phase
Fraud in the sealed bid process
Last bid submitted is the one that is awarded the contract
Winning bidder finds out what the other competitors are bidding
Winning bidder may see the other competitors’ bids before submitting his bid
Gets help on preparing the bid
73
Detecting Bid-Rigging Schemes
Unusual bidding patterns
Low bids followed by change orders
A very large unexplained price difference among bidders
Contractors who bid last and repeatedly receive the contract
A predictable rotation of bidders
Losing bidders who become subcontractors
Vendors with the same address and phone number
Fewer bidders than expected for the project
Projects that have been split into smaller ones
74
Something of Value
Cash
Promises of future employment
Promise of ownership in the supplier’s firm
Gifts
Liquor and meals
Free travel and accommodations
Cars and other merchandise
Payment of credit card bills
Loans on very favorable terms
Transfers of property
75
Illegal gratuities
Given to reward a decision rather than influence it
Decision made to benefit a person or company but is not influenced by any sort of payment
May influence future decisions
76
Economic extortion
“Pay up or else”
Employee demands payment from a vendor in order to make a decision in the vendor’s favor
77
Overbilling schemes
Bill originates from a real company in which the fraudster has an undisclosed economic or personal interest
Fraudster uses influence to ensure the victim company does business with this particular vendor
Does not negotiate in good faith or attempt to get the best price for the employer
78
Overbilling schemes
Bill originates from a real company in which the fraudster has an undisclosed economic or personal interest
Fraudster uses influence to ensure the victim company does business with this particular vendor
Does not negotiate in good faith or attempt to get the best price for the employer
79
Turnaround sales
The employee knows that the company is seeking to purchase a particular asset and purchases it himself
Turns around and sells it to the company at an inflated price
80
Underbillings
Goods are sold below fair market value to a customer in which the perpetrator has a hidden interest
81
Writing off sales
Purchases are made from the victim company and credit memos are later issued
82
Business diversions
Siphoning off clients of the victim company to the employee’s own business
83
Resource diversions
Diverting funds and other resources for the development of the employee’s own company
84
Financial disclosures
Inadequate disclosures of related-party transactions to the company
85
Preventing and Detecting Conflicts of Interest
Implement, communicate, and enforce an ethics policy that addresses conflicts of interest offenses
Require employees to complete an annual disclosure statement
Establish an anonymous reporting mechanism to receive tips and complaints
Compare vendor address and telephone files to employee address and telephone files for matches
86
Financial Statement Fraud
Deliberate misstatements or omissions of amounts or disclosures of financial statements to deceive financial statement users, particularly investors and creditors.
87
Defining Financial Statement Fraud
Falsification, alteration, or manipulation of material financial records, supporting documents, or business transactions
Material intentional omissions or misrepresentations of events, transactions, accounts, or other significant information from which financial statements are prepared
Deliberate misapplication of accounting principles, policies, and procedures used to measure, recognize, report, and disclose economic events and business transactions
Intentional omissions of disclosures, or presentation of inadequate disclosures, regarding accounting principles and policies and related financial amounts (Rezaee 2002)
88
Costs of Financial Statement Fraud
In addition to the direct economic losses of fraud are
Legal costs; increased insurance costs; loss of productivity; adverse impacts on employees’ morale, customers’ goodwill, and suppliers’ trust; and negative stock market reactions
These costs are impossible to measure
Undermines the reliability, quality, transparency, and integrity of the financial reporting process
Jeopardizes the integrity and objectivity of the auditing profession, especially of auditors and auditing firms
Diminishes the confidence of the capital markets, as well as of market participants, in the reliability of financial information
Makes the capital markets less efficient
Adversely affects the nation’s economic growth and prosperity
Results in huge litigation costs
Destroys careers of individuals involved
Causes bankruptcy or substantial economic losses by the company engaged in financial statement fraud
Encourages regulatory intervention
Causes devastation in the normal operations and performance of alleged companies
Raises serious doubt about the efficacy of financial statement audits
Erodes public confidence and trust in the accounting and auditing profession
89
Methods of Financial Statement Fraud
Fictitious revenues
Timing differences
Improper asset valuations
Concealed liabilities and expenses
Improper disclosures
Fictitious revenues
Timing differences
Improper asset valuations
Concealed liabilities and expenses
Improper disclosures
90
Fictitious Revenues
Recording of goods or services that did not occur
Fake or phantom customers
Legitimate customers
Sales with conditions
Pressures to boost revenues
91
Red Flags – Fictitious Revenues
Rapid growth or unusual profitability, especially compared to that of other companies in the same industry
Recurring negative cash flows from operations or an inability to generate cash flows from operations while reporting earnings and earnings growth
Significant transactions with related parties or special purpose entities not in the ordinary course of business or where those entities are not audited or are audited by another firm
Significant, unusual, or highly complex transactions, especially those close to period-end that pose difficult “substance over form” questions
Unusual growth in the number of days’ sales in receivables
A significant volume of sales to entities whose substance and ownership are not known
An unusual surge in sales by a minority of units within a company, or of sales recorded by corporate headquarters
92
Timing Differences
Recording revenue and/or expenses in improper periods
Shifting revenues or expenses between one period and the next, increasing or decreasing earnings as desired
Matching revenues with expenses
Premature revenue recognition
Long-term contracts
Channel stuffing
Recording expenses in the wrong period
93
Red Flags – Timing Differences
Rapid growth or unusual profitability, especially compared to that of other companies in the same industry
Recurring negative cash flows from operations, or an inability to generate cash flows from operations, while reporting earnings and earnings growth
Significant, unusual, or highly complex transactions, especially those close to period-end that pose difficult “substance over form” questions
Unusual increase in gross margin or margin in excess of industry peers
Unusual growth in the number of days’ sales in receivables
Unusual decline in the number of days’ purchases in accounts payable
94
Concealed Liabilities
Liability/expense omissions
Capitalized expenses
Failure to disclose warranty costs and liabilities
95
Red Flags – Concealed Liabilities
Recurring negative cash flows from operations or an inability to generate cash flows from operations while reporting earnings and earnings growth
Assets, liabilities, revenues, or expenses based on significant estimates that involve subjective judgments or uncertainties that are difficult to corroborate
Nonfinancial management’s excessive participation in or preoccupation with the selection of accounting principles or the determination of significant estimates
Unusual increase in gross margin or margin in excess of industry peers
Allowances for sales returns, warranty claims, and so on that are shrinking in percentage terms or are otherwise out of line with industry peers
Unusual reduction in the number of days’ purchases in accounts payable
Reducing accounts payable while competitors are stretching out payments to vendors
96
Improper Disclosures
Liability omissions
Subsequent events
Management fraud
Related-party transactions
Accounting changes
97
Red Flags – Improper Disclosures
Domination of management by a single person or small group (in a non-owner managed business) without compensating controls
Ineffective board of directors or audit committee oversight over the financial reporting process and internal control
Ineffective communication, implementation, support, or enforcement of the entity’s values or ethical standards by management, or the communication of inappropriate values or ethical standards
Rapid growth or unusual profitability, especially compared to that of other companies in the same industry
Significant, unusual, or highly complex transactions, especially those close to period-end that pose difficult “substance over form” questions
Significant related-party transactions not in the ordinary course of business, or with related entities not audited or audited by another firm
Significant bank accounts, or subsidiary or branch operations, in tax haven jurisdictions for which there appears to be no clear business justification
Overly complex organizational structure involving unusual legal entities or managerial lines of authority
Known history of violations of securities laws or other laws and regulations; or claims against the entity, its senior management, or board members, alleging fraud or violations of laws and regulations
Recurring attempts by management to justify marginal or inappropriate accounting on the basis of materiality
Formal or informal restrictions on the auditor that inappropriately limit access to people or information or the ability to communicate effectively with the board of directors or audit committee
